Result Update: Tata Sponge Iron Ltd - REDUCE - TP Rs.1172 - Kotak

Tata Sponge's net sales during the quarter grew 49.4%/28.3% YoY/QoQ to Rs2,145 mn, the sharp jump in the revenue was on account of higher realisation. EBITDA during the quarter grew 39.9% QoQ to Rs481 mn, with an EBITDA margin of 22.4%. The company reported PAT of Rs360mn, in-line with our estimates. Considering continued uptick in spreads and sustenance of the same, make us believe that TTSP's earnings likely to be strong in the coming quarters as well. Besides this, TTSP's strong balance sheet and improved outlook for the steel sector, foray into steel making through brownfield route, is a key positive. We revised our earnings higher on account of higher sponge iron prices, which have gone up sharply in line with upward movement in scrap prices. Our revised earning stands at Rs83.4 (earlier Rs77.4) and Rs88 (earlier Rs80) for FY18E and FY19E, respectively and introducing FY20E with an EPS of Rs89.4. Though, we remain positive on TSIL due to better visibility on spread improvement and its sustenance, but given the recent rally, we believe that at current valuation of 5.6x/4.9x FY19E/FY20E, the stock is fairly valued. Hence, we recommend REDUCE (earlier ACCUMULATE) with a revised target price of Rs1,172 (earlier Rs1,020), roll forward our target multiple to FY20. We have not assigned any value to the investment of Rs1.8bn made by the company on the coal block, as the company's coal block is yet to put in the auction

Shares of TATA SPONGE IRON LTD. was last trading in BSE at Rs.1167.8 as compared to the previous close of Rs. 1172.8. The total number of shares traded during the day was 33321 in over 1224 trades.

The stock hit an intraday high of Rs. 1198.6 and intraday low of 1153. The net turnover during the day was Rs. 39129711.

Source : Equity Bulls

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